Most emerging markets ETFs are performing admirably Thursday, but India ETFs are among the leaders. The iShares India 50 ETF (INDY) and the WisdomTree India Earnings ETF (EPI) are both up more than 3% and the catalyst is easy to spot.
Asia’s third-largest economy is taking steps to liberalize its embattled currency, the rupee. Through a deal with the World Bank, India will launch its first offshore rupee bond effort. The World Bank’s International Finance Corp. will increase the size of the offshore rupee bond market by selling $1 billion of the bonds to global investors, report Robin Harding and James Crabtree for the Financial Times.
The IFC will sell the bonds in dollars, convert the proceeds to rupees and invest them in India, according to the FT. Returns will be linked to dollar/rupee fluctuations, but the bonds will carry the World Banks’s AAA credit rating, a noteworthy feature because India is currently struggling to hold its investment-grade rating, the lowest among the four BRIC nations. [New Central Bank Leader Lifts India ETFs]
News of the World Bank/rupee bond scheme comes as the Indian currency, previously the worst performer in the developing world this year, is gaining steam. The rupee gained 9% against the dollar last month and outperformed the euro, British pound and other major currencies. [Rupee Goes From Worst to Better]
EPI, one of the largest India ETFs with $970.5 million in assets under management, recently rebalanced, adding some exposure to sectors that have been hit by the falling rupee.
Underperforming sectors “consisted of Industrials, Utilities, Materials, Financials and Energy. Their average return over the period was worse than -25%, about 12% worse than the performance of WTIND (-13.2%). These underperforming sectors received about 5% additional weight at this year’s annual rebalance screening. The greatest two weight increases were to Financials and Utilities, whereas Energy and Industrials were largely unchanged in weight,” according to WisdomTree. [WisdomTree: India Earnings Index Annual Rebalance]
With the rupee stabilizing and the World Bank giving India an avenue to issue less dollar-denominated debt, EPI and its rivals could be poise to deliver upside. EPI and INDY are down an average of 2.6% in the past 90 days.
WisdomTree India Earnings ETF